Genuine Spice Inc. began operations on January 1, 2016. The company produces eight-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Cost per Case
Cream base	Variable	100 ozs.	$0.02	$ 2.00
Natural oils	Variable	30 ozs.	0.30	9.00
Bottle (8-oz.)	Variable	12 bottles	0.50	6.00
				$17.00
DIRECT LABOR
Department	Cost Behavior	Time per Case	Labor Rate per Hour	Cost per Case
Mixing	Variable	20 min	$18.00	$6.00
Filling	Variable	5	14.40	1.20
		25 min.		$7.20

FACTORY OVERHEAD
	Cost Behavior	Total Cost
Utilities	Mixed	$600
Facility lease	Fixed	14,000
Equipment depreciation	Fixed	4,300
Supplies	Fixed	660
		$19,560

Part ABreak-Even Analysis

The management of Genuine Spice Inc. wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:

2016

Case Production

Utility Total Cost

January

500

$600

February

800

660

March

1,200

740

April

1,100

720

May

950

690

June

1,025

705

Required-Part A:

1.

Determine the fixed and variable portion of the utility cost using the high-low method..

	At High Point	At Low Point
Variable cost per unit
Total fixed cost
Total cost

Part BAugust Budgets

During July of the current year, the management of Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 per case for August. Inventory planning information is provided as follows:

Finished Goods Inventory:

	Cases	Cost
Estimated finished goods inventory, August 1, 2016	300	$12,000
Desired finished goods inventory, August 31, 2016	175	7,000

Materials Inventory:

	Cream Base	Oils	Bottles
	(ozs.)	(ozs.)	(bottles)
Estimated materials inventory, August 1, 2016	250	290	600
Desired materials inventory, August 31, 2016	1,000	360	240

There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.

Required-Part B:

6. Prepare the August direct materials purchases budget. Enter all amounts as positive numbers.

Genuine Spice Inc.
Direct Materials Purchases Budget
For the Month Ended August 31, 2016
	Cream Base (ozs.)	Natural Oils (ozs.)	Bottles (bottles)	Total
Units required for production
Plus desired ending inventory
Less estimated beginning inventory
Total
X Unit price
Total direct materials to be purchased

7.

Prepare the August direct labor budget. Round the hours required for production to the nearest hour.*

Genuine Spice Inc.
Direct Labor Budget
For the Month Ended August 31, 2016
	Mixing	Filling	Total
Hours required for production
X Hourly rate
Total direct labor cost

8.

Prepare the August factory overhead budget. If an amount box does not require an entry, leave it blank. (Entries of zero (0) will be cleared automatically by CNOW.)*

Genuine Spice Inc.
Factory Overhead Budget
For the Month Ended August 31, 2016
	Fixed	Variable	Total
Factory overhead:
Utilities
Facility lease
Equipment depreciation
Supplies
Total

9.

Prepare the August budgeted income statement, including selling expenses. NOTE: Because you are not required to prepare a cost of goods sold budget, the cost of goods sold calculations will be part of the budgeted income statement.

Genuine Spice Inc.
Budgeted Income Statement
For the Month Ended August 31, 2016
Sales
Finished goods inventory, August 1
Direct materials inventory, August 1
Direct materials purchases
Less direct materials inventory, August 31
Cost of direct materials for production
Direct labor
Factory overhead
Less finished goods inventory, August 31
Cost of goods sold
Gross profit
Selling expenses
Income before income tax